After crunching the numbers again, I identified new insights into the 2023 drug market. As the charts below show, CMS expects that the employer-sponsored insurance market will shrink more than it had previously projected, while Medicare and Medicaid will grow even faster. CMS is still projecting that individually-purchased private insurance (via both public and private exchanges) will account for a small share of drug spending.

I refer to the latter category as Individually-Purchased Private Insurance. CMS projects that within a few years, growth in this spending category will come primarily from people who purchase private insurance via state marketplaces.

CMS did not provide projections for drug spending within the two sub-categories of private health insurance. Therefore, I disaggregated total private health insurance spending using CMS’s enrollment data. I assume that total private insurance drug spending will be proportional to overall healthcare spending by people with (1) employer-sponsored private insurance and (2) individually-purchased private insurance. According to Express Scripts’ October 2014 Exchange Pulse Report report, exchange enrollees’ pharmacy benefit spending has been slightly below commercial plan beneficiaries’ spending. If this trend continues, then my estimates for exchange spending will prove slightly high.

THE PAYMENT OUTLOOK

The chart below summarizes the major payers from 1973 to 2023.

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Here’s what CMS is projecting:

Public funds will overtake employer-sponsored spending. CMS projects that public funds will account for 45% of outpatient retail prescription spending in 2023, while employer-sponsored private health insurance’s share will drop to 38%. Last year, CMS projected that employer-sponsored insurance’s share would amount to 43% in 2022, so the newer forecast implies a faster decline.

Individually-purchased insurance will account for 5% of drug spending. This category includes Medicare supplemental coverage and individually purchased plans, including coverage purchased through the federal and state marketplaces. CMS expects enrollment in individually purchased private insurance plans to grow, from 20.5 million people in 2013 to 32.5 million people by 2023.

Consumers will account for an ever-smaller share of drug spending. Consumer out-of-pocket funds—the sum of cash-paid prescriptions and consumer copayments—will decline to 12% in 2023. This will continue a long-term trend.

The chart below shows changes in absolute spending, by payer.

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CMS estimates that annual U.S. outpatient prescription drug expenditures will grow by $210.7 billion (+77%), to $482.7 billion in 2023.

Individually-purchased private insurance will have the fastest growth, although it will only total $23 billion in drug spending by 2023.

Both Medicare and Medicaid will grow more than twice as quickly as employer-sponsored insurance. In 2018, employer-sponsored private health insurance’s spending will drop below the combined spending figure for Medicare and Medicaid. (Perhaps it’s no coincidence that the excise tax on high-cost insurance plans will begin in 2018.) By 2023, these two programs will spend a combined $209.3 billion on outpatient drugs—$24.5 billion more than the $184.8 billion that will be paid by employer-sponsored insurance.

Consumers’ absolute spending will grow the most slowly, from $46.8 billion in 2013 to $59.8 billion in 2023.

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Most of the government’s spending will be managed by private companies, via Medicare Part D prescription drug plans, Managed Medicaid, and private insurance purchased on the public exchanges. But the latest CMS projections show that the government’s behind-the-scenes influence will be far greater than it is today.

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